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When the stock market takes a 16% dip in just a month's time, investors can get easily spooked. When that time comes, companies that traded for sky-high valuations are usually the first to suffer -- and often suffer the most.
While some flee toward the safety of dividend-paying stalwarts, a rogue group of historically successful investors sweep in to scoop up these out-of-favor stocks. Over the course of years and decades, these contrarian investors hope, such purchases will yield market-crushing returns.
Today, I’ll be introducing you to five aggressive growth companies that I’m thinking about putting my money behind.
But first, a quick lesson in personal finance
In my eyes, the circumstances under which people invest can be broken down into two camps.
- Lump-sum investors: If you’ve just retired, rolled over your 401(k), or suddenly came into a lot of money, you could be sitting on a mountain of cash. If you’re looking for places to put that money, you can look at my suggestions below, or you can check out the 10 stocks that I put over $40,000 of my own retirement money into.
- Steady, incremental investors: Sometimes referred to as dollar-cost averaging, this is the type of investing far more common for working folks. If you follow this strategy, though, it's essential to take maximum advantage of features like Roth IRAs to help you reach your goals.
So starting this month -- and continuing on the last Monday of every month -- I’ll publicly announce the stock that I’ll be putting about $415 (one-twelfth of the Roth maximum) of my own money into.
I hope that this will encourage others to take advantage of this wealth-building machine.
On to the stocks!
Take a look at the five stocks I’m seriously considering buying this month, what they do, and how much they fell in the month ending Aug. 22. Remember, over the same period of time, the S&P 500 was down 16.4%.
What They Do
|Netflix (Nasdaq: NFLX )||Entertainment via streaming and DVDs||
|lululemon athletica (Nasdaq: LULU )||Primarily women's sportswear||
|Travelzoo (Nasdaq: TZOO )||Travel and local deals||
|Deckers (Nasdaq: DECK )||Ugg boots and Teva sandals||
|Zipcar (Nasdaq: ZIP )||Urban and college car-sharing||
Source: Yahoo! Finance.
Talk about a company stuck in several crosshairs! A combination of competition from Amazon.com’s (Nasdaq: AMZN ) streaming service, Coinstar’s (Nasdaq: CSTR ) DVD rental kiosks, a public-relations mishap regarding price changes, and concerns about rising content costs have really put a dent in Netflix.
But the company and its CEO have made all the right moves in the past. Netflix has already successfully expanded into Canada and has its sights set on 43 more Central and South American countries within a year. If all goes well, we could be talking about the content-distributing empire of tomorrow.
No one ever claimed that Lululemon’s stock was cheap. Even with analysts dumping on the stock only to see the company have a surprisingly strong quarter despite a lack of inventory, shareholders have seen a quarter of their money disappear.
But this company, with its unique store design that includes free yoga classes, still had only 81 corporate-owned stores in the U.S. as of May 1. That gives the company an incredible runway for growth, both domestically and abroad.
Fellow Fool Rick Munarriz has already jumped on this bandwagon. The company fell $0.09 short of the consensus estimate of $0.39 per share last month, despite posting a 34% rise in revenue and an astounding 51% increase in earnings year over year.
I think the Street is missing the bigger story here: Travelzoo had its fastest sequential growth in new employees in its history, with most of the new hires going to the company's Local Deals business across the country. While paying for these new salaries -- and the cost to train the new specialists -- the quarter wasn’t long enough for the new employees to get out there and actually generate revenue for Travelzoo.
The maker of Ugg boots and Teva sandals has been on a tear for the past two years, up over 250%. It’s no surprise, then, that the company was bound to hit the skids once the larger stock market took a fall.
But the company, which is aggressively spreading its tentacles abroad, now trades for just 14 times future earnings and has a PEG ratio of just 0.8. That makes it attractive in my book.
No, this car-sharing company isn’t profitable yet, but that is largely due to its aggressive growth plans. It costs a lot of money to buy and lease cars to expand a fleet; but because Zipcar sees an incredible opportunity presenting itself in cities across the country, it is willing to endure some short-term pain for long-term market-share gain. Its rise in members, now above 600,000 strong, shows that this is more than just a fad.
Which company will it be?
Tune in on Monday to find out which company I’ll be putting my own Roth money into. All five of these stocks are worthy of your consideration, but if you'd like one more, I'm willing to offer you access to a special free report from The Motley Fool's team of analysts: "The Tiny Gold Stock Digging Up Massive Profits." Inside you'll read about a company that found a mountain of gold -- and profits -- in Canada. The report is yours today, absolutely free!